Discussion paper
DP15498 Workplace Incentives and Organizational Learning
This paper studies learning within organizations when incentives change. We use a simple principal-agent model to show how, in the presence of imperfect information over the shape of the production function, workers' effort choice changes over time as information is disclosed and processed. We also show that changing incentives can trigger this learning process. We test this prediction using personnel data from an egg production plant in Peru. Exploiting a sudden change in the contract parameters, we find that workers learn from each other over the shape of the production function. This adjustment process is costly for the firm.
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